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Scooped by
Graham Watson
onto Microeconomics: IB Economics May 29, 2:09 AM
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Plans to build costly DRI plant in Britain to make green steel is seen by some as the future and others as a ‘white elephant’
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Firms including Thames Water have been stopped for paying rewards to executives under new rules.
Graham Watson's insight:
Economics is all about incentives and this is a lovely example of something that should have been done many years ago. However, the Water Act has been revised so that executive bonuses are contingent on meeting environmental and consumer standards.
As a result, six companies have been banned from paying bonuses from April 2024 onwards - Anglian Water, Southern Water, Thames Water, United Utilities, Wessex Water and Yorkshire Water. Of course, the danger is that companies will simply boost base salaries.
If the government were really serious about it, they might even consider using the justice system - after all, last time I looked fly-tipping is illegal.
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Partha Dasgupta’s landmark study provided way to put a value on nature – but many fear report has been sidelined
Graham Watson's insight:
This Guardian piece highlights the apparent trade-off between economic growth and the environment, and, in this case, Labour's housebuilding plans and the UK's biodiversity. In doing so, it develops the idea that 5,000 nature sites are going to be imperilled by housebuilding on this scale.
However, that rather assumes that the loss of any environmental resource is a bad thing; the reality is that as an economist you have to weigh up the value/cost of the natural resource and the benefits that would be derived from developing it. If you don't you could reasonably argue that you prefer the level of biodiversity associated with the 16th century, but are you prepared to sacrifice all the economic growth that has taken place since then? I'd very much doubt it.
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Spain’s recent blackout and AI datacentres’ energy needs are leading politicians to reach for the restart button
Graham Watson's insight:
The increased demand for energy means that nuclear power has come back into fashion, with a number of European economies thinking about restarting their nuclear programme to guarantee their energy security.
This is interesting because there's a clear cost-benefit analysis required: nuclear power is also associated with negative externalities.
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Up to 500,000 more plug-in hybrids could be sold because of government flexibility on the zero-emission mandate
Graham Watson's insight:
One for the now-famous "That's Why they Earn the Big Bucks" folder, with a climate advisor reporting that a relaxation of the EVs sales target rules is going to result in higher emissions. Remarkable acuity.
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Watchdog says fines reflect ‘potentially serious risk to the public’ because of missed callout targets
Graham Watson's insight:
What a week for the regulator, with OFGEM fining three companies for their poor service, and failure to respond to callouts relating to gas leaks.
The three firms, Cadent Gas, Scotland Gas Networks (SGN Scotland) and Southern Gas Networks (SGN Southern) have been fined £8m for failing to attend 97% of these callouts within two hours. The money has been earmarked for spending on the most vulnerable customers.
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Plans to build costly DRI plant in Britain to make green steel is seen by some as the future and others as a ‘white elephant’
Graham Watson's insight:
This could be Macroeconomic, but I've put it her because for me it raises questions about the nature of government intervention. The article highlights the fact that the government appear to be considering funding the construction of a so-called green steel (technically, a direect reduced iron [DRI]) plant. Such a plant would cost up to £2bn to build but if green hydrogen were used, it would be an environmentally-friendly method of steel production.
However, it's all about weighing up the costs and benefits: frankly, the benefits don't seem massive given that such plants aren't very labour-intensive and only employ around 200 people. And there's one question that needs to be answered. If such plants were profitable, then why isn't the private sector investing in them.
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The rule requiring planning permission if a heat pump is within 1m of a neighbours property has been removed.
Graham Watson's insight:
This article highlights how government regulations - such as health and safety legislation - can affect supply. In this case, it's heat pumps that are affected, so the government is relaxing regulations that require planning permission if a heat pump is within 1m of a neighbour's property, something that would be an issue given the nature of a lot of the UK's housing stock.
However, the issue is that I, and many others, don't think that this is going to have a marked effect upon their uptake, given their high initial, sunk cost.
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Experts decry lack of UK government action and warn a further 6,000 early deaths could occur
Graham Watson's insight:
The negative externalities of air pollution are well known, but I'd love to see the methodology that allows the Centre for Research on Energy and Clean Air (Crea), which conducted the research for environmental law group ClientEarth, to make such specific claims.
The article states: "In the UK, these excess emissions had led to 800,000 days of sick leave and a total economic burden due to deaths and poor health of £96bn by 2024...Across the UK and EU combined, the fallout from Dieselgate has included about 124,000 early deaths and economic damage of €760bn (£637bn), the study estimated. Without action, a further 81,000 premature deaths and €430bn are projected by 2040, by which time most Dieselgate vehicles will no longer be in use."
An interesting article for ToK students as well as Economics students.
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The company has been fined for breaching rules over wastewater operations and dividend payments.
Graham Watson's insight:
Regulation in action - but watch this space. OFWAT has issued a record fine to Thames Water for breaching both waste water standards and dividend payments. This might ultimately trigger the collapse of Thames Water, and certainly if that's the case this is exactly what the company will claim.
Of course, it's not the years of over-remunerated chronic mismanagement that's to blame. The board and the company's executives should hang their heads in shame.
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Amid apparent rising pay, economists are concerned about the consequences of a possible shift in the balance of power
Graham Watson's insight:
This Guardian article is an excellent look at the nature of the UK's labour markets and wage determination in the current economic environment.
The article starts from the premise that workers now have more power than they've had for most of the recent past, and the suggestion is that workers with digital skills are able to command a premium and they are being well-rewarded for them.
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Revealed: an investigation shows how consumers buying fish in the UK are playing a role in food insecurity and unemployment in Senegal
Graham Watson's insight:
An externality story for you - albeit an unusual one. This Guardian article highlights how farmed Turkish supermarket sea bass is increasingly being fed fishmeal made using small Senegalese fish, that has depleted West African fish stocks, and put local fishermen out of work.
It's a classic example of the Tragedy of the Commons, where the absence of property rights inevitably results in environmental depletion and environmental degradation.
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Government and Ofwat unlikely to revive scheme handing out ‘very substantial’ payments for remaining on payroll
Graham Watson's insight:
Nils Pratley on Thames Water's retention bonus scheme.
He's correct in asserting exactly who the prats are, and why such a scheme is currently indefensible - and why even under normal circumstances it would still seem odd.
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Energy watchdog says it is ‘time to sound alarm’ over future shortages of metal needed for low-carbon transition
Graham Watson's insight:
The International Energy Agency reckons that there's a looming copper crisis that is going to make the green transition harder than it might otherwise be. The problem is that demand for critical metals, like copper and lithium, is outstripping existing sources of supply and this has obvious implications for their price.
As a result the head of the IEA, Fatih Birol, is asking for government intervention to encourage increased copper recycling and substituting other metals that are more abundant, such as aluminium, where possible.
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Editorial: A new ‘guiding mind’ for the industry will end the fragmentation that came with privatisation. But the public will want to see cheaper tickets too
Graham Watson's insight:
Today's Guardian editorial looks at the future of Great British Railways and argues that, instead of being seen as a last resort, renationalisation should be seen as an opportunity to bring coherence to Britain's rail network.
That said, it's idealistic in imagining that all of this can be provided with reduced fares for customers. The sector needs a real rethink - but in the short-term resolving industrial relations and improving customer service would be a start.
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The setback increases the possibility that the company will collapse into a government-supervised administration.
Graham Watson's insight:
And now the end is near...
It seems as though the rotund soprano is limbering up in the wings, as far as Thames Water is concerned, with preferred potential investor KKR pulling out of bidding for the company. I presume that some, if not all of this, is a result of the recent fine imposed on Thames, and the implications of this for its already pretty tarnished brand image.
Still, as long as the executives get their bonuses, it shouldn't matter, but it looks increasingly like it's going to go back into government-supervised ownership.
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Michael O’Leary is set to earn a bonus worth more than €100m (£84m) after clearing a key performance target.
Graham Watson's insight:
I scoop this, unsurprisingly, because it's one of my favourite topics and because I think it provides an interesting starting point for discussing labour market theory.
Even more interestingly, although I'm generally opposed to such obscene bonuses, I also have a degree of respect for Michael O'Leary and how he's transformed Ryanair from a small regional airline. However, 100m euros strikes me as an unreasonable bonus - not least because in part it's been accrued on the back of the effort of Ryanair's notoriously poorly paid staff.
I also think that his point of comparison with Premier League footballers is inappropriate; I don't think that the notion of 'superstars' earning economic rent applies to business. Most Chief Executives are interchangeable and don't have a unique skillset. However, does the bonus reflect his marginal revenue product over time? Worth discussing.
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More than 60,000 workers have received back pay worth £7.4m from 518 employers after HMRC investigations
Graham Watson's insight:
Despite the fact that the minimum wage is presented as a legally enforceable wage floor, you'd be amazed at the companies that don't pay it.
This article highlights that British Airways, Halfords, Lidl, Capita and Pizza Express have been forced into giving employees back pay after HMRC. They're not insignificant employers - 60,000 workers are set to benefit as a result.
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If fares don’t fall and services don’t improve, it could undermine the case for public ownership for a long time to come, says Sarah Nankivell of Common Wealth
Graham Watson's insight:
Whilst I agree with some of what Sarah Nankivell of Common Wealth is arguing - about the renationalisation. I'd be cautious about this article.
In it, there are a number of things that you might quibble with, not least the notion that rail fares should fall. Perhaps they should, in real terms, but how is that compatible with a higher standard of service and investment in the sector? And if there is significant investment in the sector, shouldn't this be paid for by rail users, rather than the taxpayer?
And then there's the notion that's always wheeled out about comparative train fares in the UK and Europe. Yes, we pay five times more than European rail users but that can be attributed to a high level of state subsidy, and it might be argued that European rail benefits from great economies of scale than the UK.
However, her overall point that rail renationalisation needs to succeed isn't unreasonable. It's just that I don't think that all the arguments in support of this stack up.
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Big brands retaining high prices and government yet to publish response to CMA investigation into infant milk
Graham Watson's insight:
This article highlights the extent to which competition policy is dependent upon the structure of the market it's imposed on. Despite a Competition and Markets Authority investigation of the market for baby formula, its price remains stubbornly high. As one campaigner notes: "...despite being exposed for maintaining 50-75% profit margins, the big brands are maintaining high prices, which we think is shameful.”
The exceptions to this are Aldi and Lidl whose own brand baby formula costs £6.99 in comparison with the £11.99 charged by major brands, who account for 85% of the market. So why haven't other supermarkets sought to produce their own brands? You would have thought that the high price of branded baby formula suggests that there's supernormal profit being earned and that should attract new entrants. Or is it the case that the existing brands are so strong that other action needs to be taken? And would this be good economics or not?
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Nestlé is among UK companies taking part in project to ‘design out’ waste by redistributing surplus product
Graham Watson's insight:
Innovation is tackling food waste, with a number of UK companies, including Nestlé, trialling the use of AI to 'design out' food waste. At present, as is noted in the article, "About 4.6 million tonnes of edible food, equivalent to 10bn meals of food, is wasted in the UK each year".
The use of such technology might help food charities like FareShare to redistribute food to more than 8,000 charities and community groups across the UK.
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More than £70m is being paid to customers who were forced to switch to prepaying for energy.
Graham Watson's insight:
A big day for regulation, with energy companies also fined £74m by OFGEM for forcing customers onto smart meters - some of which don't function very well.
As a result of breaching standards of service and customer care, 8 energy companies have been fined including Scottish Power, E.On, EDF and Octopus, and they will have to make redress in the form of compensation or writing off customer debts.
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The fried chicken firm will invest nearly £1.5bn over five years as rivals step up expansion.
Graham Watson's insight:
I could easily pop this in the Macroeconomic board as an example of FDI, but I'm most interested here in KFC's response to greater competition in the market for fried chicken.
Clearly the market has seen a number of new entrants - Wingstop, Popeye's and Dave's Hot Chicken. However, they're tiny in comparison to KFC, and the prospect of an additional 500 sites in addition to its current 1,000 plus sites strikes me as more of an attempt to erect a barrier to entry rather than simply internally growing the business.
And then there's the local context to take into account - in Birmingham, for example, there are lots of local competitors. And then there's Bonehead which, frankly, knocks all of these bigger chains into the proverbial cocked hat.
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Global prices drop after reports that Opec+ is ready to raise output despite weaker demand for fossil fuels
Graham Watson's insight:
A classic of the genre - D&S - with falling oil prices likely to be followed by falling petrol prices. The price of crude oil has fallen well below $80 to $63.86, in part as a result of an increase in the output of oil producers.
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A typical annual domestic energy bill will drop by £129 in July, the first fall in a year.
Graham Watson's insight:
As predicted by Cornwall Insights, the Energy Price Guarantee - the energy price gap - is going to be lowered by £129, reducing the energy bills of the average household to £1,720, down from the current level of £1,849.
It's welcome relief at a time when many other bills have risen.
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Cocoa one of six commodities vulnerable to environmental threats in ‘extremely worrying picture’ for food resilience
Graham Watson's insight:
Another shortage-related article, with climate change driving a shortage of cocoa and other key crops. This is because many of the major producers are vulnerable to the worst effects of climate change, such as unpredictable weather. As a result, this increases food prices and adversely affects food security.
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This could be Macroeconomic, but I've put it her because for me it raises questions about the nature of government intervention. The article highlights the fact that the government appear to be considering funding the construction of a so-called green steel (technically, a direect reduced iron [DRI]) plant. Such a plant would cost up to £2bn to build but if green hydrogen were used, it would be an environmentally-friendly method of steel production.
However, it's all about weighing up the costs and benefits: frankly, the benefits don't seem massive given that such plants aren't very labour-intensive and only employ around 200 people. And there's one question that needs to be answered. If such plants were profitable, then why isn't the private sector investing in them.